Oral Answers to Questions

Andy Reed: Although I do not completely share the analysis of the right hon. Member for Hitchin and Harpenden (Mr. Lilley) on climate change, I agree that it is important that we play a leading role in ensuring that the developing countries that receive Department for International Development funding see it targeted at sustainable development. Does the Minister agree that programmes such as using hydrogen fuel cells for microgeneration are important for developing local projects in areas where there is no access to electricity in other forms? Will he ensure that every aspect of the work of the Government and the Department work is sustainable in the long term to allow those countries to skip a generation in respect of such schemes?

Gareth Thomas: With all due respect to the hon. Gentleman, we are still some seven years away from the target date for achieving the millennium development goals and there are encouraging signs in many parts of the world that we will achieve both the top-line millennium development goal and a number of others. We are off track on a number of the goals. That is very true, but it is one reason why my right hon. Friend the Prime Minister initiated a high-level event at the UN in September in order to focus on what else we need to do to get back on track to meet the millennium development goals. The impact of climate change was very much part of that discussion.

Gareth Thomas: I do not share the doom-laden scenario that the hon. Gentleman has peddled. I think that significant progress was made at Poznan. When the talks were launched in Bali 12 months ago everyone was certain that it would be at least two years before a deal was reached on climate change, but we have seen some of the key building blocks for tackling its impact in developing countries begin to be put in place, such as the adaptation fund that I mentioned earlier and action to tackle deforestation. The Secretary of State for International Development and the Secretary of State for Energy and Climate Change have announced a £100 million contribution to help tackle deforestation and to help with taking a series of additional steps in that regard. What the Government as a whole will do now is work with a range of partners, including G20 colleagues, to establish what further action we can take to increase appetite for the deal at Copenhagen that we all want to see, and build progress towards it.

Douglas Alexander: The message that the British Government will continue to provide food, drugs and any assistance we can to address the crisis afflicting their country, but also recognise that humanitarian support is not enough. Whether in the councils of the European Union, the Security Council or our discussions with regional partners, we will continue to make the case that the people of Zimbabwe need and deserve a Government who represent their will.

Harriet Harman: I agree with my hon. Friend that discrimination against anyone is unacceptable and discrimination against disabled people has no place in our modern society. He is right to bring that matter to the attention of the House. I know that as an avid champion of human rights he will ensure that justice is done for his constituents, and I can confirm that we remain proud of the Human Rights Act and stand by it.

Harriet Harman: I support my hon. Friend's welcome for the increase in compensation for those who have suffered injuries in service to their country—an increase of up to £590,000. In addition, that will backdated to those who have been injured since 2005, and instead of waiting for them to contact the compensation scheme they will be contacted for their compensation level to be reviewed. He mentions the important question of adaptation. Those who are returning home will have high priority for adaptations in their homes.

Hilary Benn: With permission, I shall make a statement on the Government's response to Sir Michael Pitt's final report on the floods of summer 2007.
	Last weekend's flooding in the south-west, in which two people sadly died, reminds us of the ever-present risk that we face, and of the importance of Sir Michael's comprehensive and impressive report. In his 92 recommendations published in June, Sir Michael identified a need to clarify who is responsible for what; to ensure that the public have all the information and guidance they need; to work with essential services to assess risk and protect critical infrastructure; to have a clear recovery plan right from the start of any major emergency; and to establish the right legislative framework to tackle flooding. I can tell the House that the Government's action plan being published today supports changes in response to all his recommendations, but before setting out those changes I want to acknowledge the continuing effects of the flooding, as a second Christmas approaches.
	The fact that most people are now back home, thanks to a great deal of hard work, will be of little comfort to those families who are still out of their homes, or who are living upstairs in them. Our thoughts are with them, and their plight reminds us of the toll that flooding takes not just on people's lives, but on their emotions, and just how difficult it can be to get things going again. That is why, working with local authorities and the insurance industry, we will continue to do all we can to help. My right hon. Friend the Minister for Local Government, to whom I pay tribute for the extraordinary amount of work that he has done to help people affected, announced last month further help for those families.
	We have taken action in the 18 months since the 2007 floods. The Environment Agency has spent £5 million on repairing defences that were damaged. Forty-nine flood defence schemes have been completed, protecting 37,000 homes, from Selby in Yorkshire to St. Ives in Cornwall and from West Bridgford in Nottingham to Worcester and Hexham, the town whose newly built defences successfully protected it from significant flooding in September this year.
	Since summer 2007, more than 78,000 more people have registered with the Environment Agency's telephone flood warning system; the total is now 280,000. All local resilience forums have been briefed on critical national infrastructure in their areas, and we have brought forward to 2009-10 £20 million of flood defence spending. That will mean an earlier start on those schemes, which, when completed, will protect more than 27,000 homes from flooding and coastal erosion. In total, our £2.15 billion investment in flood defence over the three years to 2010-11 will protect an additional 145,000 homes across England.
	The further steps that I am announcing today draw both on the £34.5 million that I set aside to implement Sir Michael's report and on funding from other existing budgets. We are creating a new national flood forecasting centre, bringing together staff from the Environment Agency and the Met Office. That will start operating in April and will improve our ability to respond quickly, by providing better information and more detailed warnings directly to emergency responders.
	Having previously decided that the Environment Agency will take on a strategic overview for all forms of flooding, I am today announcing that local authorities will beresponsible for ensuring that arrangements are in place to assess and manage local flood risk from all sources, including surface water. In two-tier council areas, that responsibility will rest with county councils, but we will encourage them to work closely with districts, internal drainage boards and others. I am increasing funding to local authorities by £15 million to allow authorities where the risk is greatest to take on that new role straight away. Part of that will be for the development of surface-water management plans. I can announce that the first six local areas that have successfully bid for the funds are Hull, Gloucestershire, Leeds, Warrington, Richmond upon Thames and West Berkshire.
	In addition, I am establishing a £5 million grant scheme, for which local authorities can bid to help people better protect their homes from the risk of flooding—for example, through fitting flood boards and air-brick covers. That help will be available where it is not possible to provide protection through community-level defences. I am also providing funding to help the Environment Agency improve flood warnings, including moving to an opt-out system for ex-directory numbers. Furthermore, I am putting money into improving our flood rescue capability, so that we can make the best use of the skilled personnel and boats available.
	The national flood framework will help ensure that all the organisations involved in responding to floods, including those responsible for critical national infrastructure, understand—and are fully prepared for—what they have to do. An outline framework has already been published and the consultation that we are launching will enable us to complete the job. Meanwhile, organisations are already taking action to identify and protect infrastructure.
	On reservoir safety, we are doubling funding for inundation maps for all the country's larger reservoirs and we are providing support for local resilience forums to prepare reservoir emergency plans. We will be publishing a draft floods and water Bill for pre-legislative scrutiny in spring next year to deal with those of Sir Michael's recommendations, including clearer roles and responsibilities and strengthening reservoir safety, that require primary legislation.
	On Monday, I informed the House that we intend to transfer to water and sewerage companies private sewers and lateral drains that connect to the public system. That was welcomed by Sir Michael, and it will release many householders from a liability that they often do not know they have until something goes wrong and they face a hefty bill to sort it out. The transfer will take place from April 2011. Finally, we are establishing a Cabinet Committee to oversee work on flooding. Sir Michael will continue to be involved in reviewing progress.
	The House knows that we can never eliminate the risk of flooding, particularly as climate change takes hold, but we are all determined to learn the lessons from what has happened and to be better prepared in future. All of us—the Government, local authorities, emergency and other services, local communities and individuals—must take flood risk seriously. This report, and the steps that we are taking, will help us to do so and I commend them to the House.

Hilary Benn: I think that this is the first opportunity that I have had to welcome the hon. Gentleman to his new post from the Dispatch Box. I thank him for a little bit of what he said, but I must express sorrow that he did not seem to have listened to what I was saying or, more importantly, to have noticed what action we have been taking since the summer of 2007.
	The hon. Gentleman raised a point about lines of communication in recent instances of flooding. If he, or any other hon. Member, has an example of something that did not go right or that they are worried about, will they draw them to my attention? I am determined that we should learn the lessons and try to get things right.
	On early warning, one thing that has happened is the piloting of the extreme rainfall alert service, which I did not have time to mention earlier because there are quite a lot of things that we have done. When the hon. Gentleman has a chance to read the action plan that I am publishing today, he will see the answer to his question on that point. I should like to give the House an example. On 5 September, the Met Office forecast thunder storms and heavy showers in the south-west, and it put out one of those alerts. We have subsequently heard from Cornwall county council that the alert enabled it to pre-deploy the fire service, which, as a result, was able to rescue someone from their car at a time when the flood waters were rising by 1 ft every 20 minutes. That is a practical example of the measures that we have put in place, helping the emergency services to do a better job of protecting the public in those circumstances.
	The hon. Gentleman mentioned bringing forward flood defence schemes, but he has just heard me say that we have already brought forward £20 million-worth. We are indeed front-loading flood defence.
	On the insurance industry, the hon. Gentleman will be aware that we have worked hard with the Association of British Insurers on agreeing a new statement of principles to ensure that there continues to be insurance cover. That has been very important, although I recognise that, in some cases, premiums and excesses have gone up. However, it is as a result of our efforts that we have that agreement, and the principal factor that made that possible was the significant increase in flood defence expenditure.

Eric Martlew: As my right hon. Friend will be aware, there was severe flooding in Carlisle. The flood defences are now being built, however, thanks to the good efforts of my right hon. Friend the Member for Scunthorpe (Mr. Morley), who I see is just leaving the Chamber. Is the Secretary of State sure that the private utilities are prepared and that they have learned the lessons? They had not done so after Carlisle, and there were also problems in the west country with losing water. Furthermore, once the flood defences are built, will my right hon. Friend put pressure on the insurance companies to bring down the premiums in the areas that have been defended?

Hilary Benn: I have great sympathy with the hon. Gentleman's constituents who have suffered in the way that he has described. The Government's job is to ensure that we play our part by providing more funding for the Environment Agency for flood defence work, and that is exactly what we are doing. I think I had been in the job for about a week when I stood at this Dispatch Box and announced an increase of £200 million over the three years to 20010-11. It is because we have been putting in more money that we have been able to protect an additional 37,000 homes since the summer of 2007, and 145,000 homes will be protected by the end of 2010-11. We all have a responsibility to ensure that we argue the case for further investment in flood defence, because that is the only way in which we shall be able to help the hon. Gentleman's constituents.

John Grogan: Following the comments of my hon. Friend the Member for Stroud (Mr. Drew), may I refer particularly to recommendation 45 of the report? It states
	"The Government should be encouraging more local communities to promote innovative schemes, including contributing towards the costs".
	That has been done in the village of Elvington in my constituency, and there is a prospect of its being done in the village of Saxton. Should it perhaps be more of a priority for the Environment Agency, where possible, to provide technical advice and support for such schemes, as it is beginning to do in Yorkshire and the Humber?

Jeff Ennis: I warmly welcome my right hon. Friend's statement. I am sure he will recall that last year in both Barnsley and Doncaster in my constituency 5,000 homes were affected as a direct consequence of the bursting of the banks of the Rivers Dove, Dearne and Don. I certainly welcome the greater role local authorities will now play in flood alleviation, in the hope that they will be able to provide a more rapid response. However, will my right hon. Friend also look at trying to tap into the willing support from parish and town councils for their bigger metropolitan district councils in terms of methods flood alleviation, even if it is only to provide more flood warnings?

Mr. Speaker: The hon. Gentleman must be present to hear the statement before he questions it.

Business without Debate
	 — 
	Delegated Legislation

Mark Hoban: I am grateful to the Minister for his explanation of the Banking (No.2) Bill procedure, as it seemed rather odd to be giving this Bill a Third Reading when a Bill that was identical to it except for the title was given a Second Reading in the other place yesterday. That was a sign of the way in which we have sought to co-operate with the Government to ensure that the Bill reaches the statute book before the Banking (Special Provisions) Act 2008 expires in February next year. As the Minister said, we have sought to engage constructively as the Bill has passed through the House. We have not always agreed on some of its provisions, but we have sought to ensure a full discussion and full scrutiny.
	I am grateful to my hon. Friends the Members for South-West Hertfordshire (Mr. Gauke), for Braintree (Mr. Newmark), for Gosport (Sir Peter Viggers) and for Wellingborough (Mr. Bone) for their contributions in Committee. My hon. Friend the Member for Gosport was one of four members of the Select Committee on Treasury who served on the Public Bill Committee, along with the hon. Member for South-East Cornwall (Mr. Breed). The deliberations of the Treasury Committee in the aftermath of Northern Rock and financial instability contributed a great deal to our consideration of the Bill in the Public Bill Committee.
	We supported the Bill on Second Reading and we do not intend to oppose it on Third Reading. That does not mean that it is perfect, and, as the Minister said, there are and have been some significant concerns about it. Those concerns were particularly evident when it was first published. We welcome the fact that the Government listened not just to the concerns that we expressed in Committee but to the wider concerns of the financial services sector. We teased out some of the sector's concerns in Committee, particularly when its representatives gave evidence to the Committee. The Minister has sought to respond to those concerns. We welcome the amendments to the Henry VIII powers in clause 75, as well as the establishment on a statutory footing of the banking liaison panel in clause 10. The Minister referred to the work of the panel.
	We also welcome the fact that the Minister sought to consult widely on the secondary legislation and the code of practice. The Bill gives the tripartite authorities—the Treasury, the Bank of England and the FSA—quite extensive powers. Safeguards over the use of the powers are included in the secondary legislation that flows from the Bill and in the code of practice. Only when the legislation is seen as that package will outside bodies take comfort from the shape it is in.
	It is worth remembering that the Bill has a very narrow focus. In the context of the current financial crisis it deals principally with measures to tackle the problems associated with a failing bank. Its provisions do not address the re-opening of credit facilities to bank customers. Although it gives the Bank of England new statutory responsibilities for financial stability and gives it oversight of the payments system, it does not address issues such as the macro-prudential regulation of the banking system, a topic that has provoked considerable debate both in Parliament and outside.
	Even on the issue of which banks are included, the Bill is narrowly focused. Clause 2 describes a bank as
	"a UK institution which has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on the regulated activity of accepting deposits".
	That means that bodies such as Icesave are excluded. Icesave was a branch of an Icelandic bank, and branches are excluded from the Bill. None of the provisions in the Bill would have helped the depositors of Icesave who, in some respects, are still waiting for compensation following the collapse of the Icelandic banking system.
	A point that we raised in Committee, which the Minister sought to address, was that the Bill covers only deposit takers and does not take into account institutions that are fundamental to the stability of the banking system and do not accept deposits. We therefore welcome the amendments that the Government propose to table in the other place to deal with institutions that accept client assets and trade. In Committee, we discussed Lehman Brothers, where there have been significant problems with the administration arrangements because the tools are not in place to do the job. We welcome the move to amend the Bill, but I am sure that my noble Friends in the Lords will look very carefully at the amendments that the Government propose to table.
	At the heart of the Bill are the increased powers being given to the tripartite authorities to intervene when a bank is failing and powers through the special resolution regime to enable them to resolve the problems of a failing bank. Part 1 sets out the special resolution regime and establishes the framework for putting a bank in the special resolution regime and the powers that can be used by the Bank of England or, where appropriate, the Treasury to deal with a failing bank. We talked extensively in Committee about the objectives of the special resolution regime. I do not particularly want to dwell on those subjects at this point, although I want to come back to the issue of financial stability later on.
	Although the Bill does not rank the objectives given, it has been clear from our debates that one of the most important objectives is the protection of depositors and particularly of retail depositors. Effective arrangements to protect deposits are important if we are to ensure confidence in the banking system. We saw in the context of Northern Rock the close relationship between confidence in the banking system and the moves by depositors to withdraw their funds.
	The decision to put a bank into the special resolution regime rests with the FSA, as set out in clause 7. The Bill states that a bank will be subject to the special resolution regime when it has breached the FSA's threshold conditions, which are defined in the Financial Services and Markets Act 2000 and defined more closely in the FSA's rule book. As currently drafted, the threshold conditions are quite broad. The Minister and I discussed the location of the head office, for example, as a threshold condition, and there are other conditions that apply to insurance companies, for example. I was grateful for the Minister's assurance in Committee that the FSA is considering the threshold conditions.
	We need to see increased clarity about what will constitute a breach of the threshold conditions. The FSA determined that the recent bank failures at Bradford & Bingley, Heritable and Kaupthing had breached the threshold conditions but, two and a half months later, we are no clearer about how they breached those conditions.
	We did not make as much progress in Committee as I had hoped on the question of ensuring transparency about the use to which the Bill's powers will be put. That transparency also applies to the threshold conditions, and I hope that the FSA will bear that in mind when it looks at the issue.
	The special resolution regime established three stabilisation options—a private-sector purchaser, a bridge bank and temporary public ownership. They will be implemented through the stabilisation powers and the transfer of shares and property. The most controversial aspect of the stabilisation regime is the bridge bank, which is the vehicle that permits the partial transfer of assets and liabilities. That proposal caused the most contention between the Bill as originally drafted and as it stands now.
	We have seen a form of the bridge bank in operation already, with the dismemberment of Bradford & Bingley. Its depositors and other assets were sold to Banco Santander, while the rump of the business has effectively been nationalised by being left to the taxpayer.
	Some hon. Members present today did not attend the Committee stage of the Bill, so it is worth pointing out that the controversy stems from the fact that the partial transfers were regarded as a way to allow creditors' traditional rights to be unpicked by Government action. The rights included the arrangements governing how transactions are settled in the City. Certain types of transactions are covered by agreements that enable deals to be settled on a net basis, according to their balance at the end of the day, rather than on a gross basis.
	Regulatory capital is determined on the same basis, so there was widespread concern that the lack of proper safeguards could mean that there was no legal certainty that in-default transactions could be netted off. That legal uncertainty would have made London a more expensive to do business and undermined our competitive position. That was one source of the comments made by the financial services sector when the Bill received its Second Reading.
	The Government have taken on board those comments, and their moves in respect of netting off are very helpful. In principle, they are saying that we should follow the path of netting off and then considering exceptions, rather than setting out the qualifying financial contracts at the start. That change has been greeted positively by the financial services sector, and we look forward to the outcome of the consultation process in January.
	Investors have also been reassured by clause 60, which provides mandatory compensation to third parties where there has been a partial transfer. It adopts the principle that no creditors should be worse off than they would have been if the bank had gone into administration or liquidation. Although that is relatively easy to say, it may be difficult to implement in practice, as the process involves a great deal of judgment by the valuer, but it gives creditors some reassurance that their rights will be properly valued.
	We have touched already on the banking liaison panel set out in clause 10, which will include representatives from the tripartite authorities, the FSCS and the financial services sector, as well as people with a particular knowledge of insolvency and financial services law. I have spoken to people in the City over recent weeks and my sense is that they welcome the panel as an effective way to look at the secondary legislation that will be introduced.
	As I said, the Bill is a package: in addition to the secondary legislation that will follow, it sets out in clause 5 a code of practice that will give guidance on the exercise of stabilisation powers and the bank administration and insolvency procedures set out in parts 2 and 3. We saw an early draft of the code while the Bill was in Committee, and I am sure that a further draft will be available to Members in the other place once the consultation process is completed next month.
	The code is important because it sets out the circumstances in which the powers will be used. The greater the clarity about how the powers will be used, the more confidence there will be in the operation of the overall regime, but that also means that there should be much greater transparency about why powers have been exercised.
	I repeat that two and a half months have passed since Bradford & Bingley was subject to a bridge-bank type process, while Kaupthing and Heritable were put into administration at the beginning of October. However, there has not been that much in the way of greater transparency about the process through which the FSA and the Government went to get to that outcome. The financial services sector will learn a great deal from the explanation that is given about the exercise of those powers at that time, and that will enable it to predict more carefully how the powers in this Bill will be used in the future.
	We have touched already on the Henry VIII clause in clause 75, and the feedback that the Minister gave on the comments from the banking liaison group was very helpful. Clearly, however, those in the other place will look at those powers, as that is an area about which they are especially concerned.
	Another part of the Bill that is important in terms of the overall structure of protection for depositors deals with the changes to the FSCS. The scheme is one of the principal means by which we can protect depositors, as it gives them confidence that they will be compensated if their bank goes into administration. That needs to be thought about very carefully as the Bill proceeds through the other place, but part of the problem is that some of the detail about how deposits are to be protected will be dealt with in reforms introduced by the FSA. That is more work in progress, and it shows how difficult these matters are.
	I have spent some time looking at this Bill over the past few months, and I could talk for hours about it. On this occasion, however, I shall desist from going into more detail, although I will say that more work will be done in the other place to streamline and strengthen it. The Bill is important because it should strengthen people's confidence in the banking sector and in London as a place to do business, but it is only one of the measures needed in that regard. Other moves need to be made to restore confidence in the banking sector as a whole.

Colin Breed: I shall be brief, as I know that other hon. Members want to contribute to this relatively short debate.
	It seems a long time since we were in the midst of the Northern Rock debacle, but there has been a very considerable amount of water under the bridge and to some extent the Bill's provisions have been overtaken recently by other events. Nevertheless, the Bill is important and the Minister knows that we support it.
	I do not want to say much on that, save that there are some very welcome aspects. The banking liaison group is a very positive innovation that will be helpful both now and in the future. It also cements the sort of relationship that we need with the City in respect of matters that at times can be very delicate. If we do not get our response right, the consequences could be very profound, and it is important that we bear that in mind.
	The Bill does not cover important issues such as bank liquidity and capital, the appointment and qualification of directors, risk committees and so on, but they will have to be considered fairly soon. Therefore, to a certain extent this Banking Bill is just the first chapter of a continuing work in progress that we will have to keep looking at over the next few months. However, because there is a sunset clause in the Banking (Special Provisions) Act 2008, we have to put something on the stocks and the Bill can do that.
	Inevitably, there are still some concerns about exactly how the provisions will work, and the hon. Member for Fareham (Mr. Hoban) has outlined them. We must hope that many of the provisions will not actually be required. If they are, we could be in a lot more difficulty. The Bill is a bit like bolting the stable door after the horse has gone, but it is extremely important nevertheless that it is on the stocks, although if we have to use some of its provisions we shall be looking at some stark situations.
	We debated the amount for the Financial Services Compensation Fund in Committee and there was some disagreement about whether there should be pre-funding, which is, rightly, not on the agenda at present—clearly, the banks need all the capital they can get. One element that we did not much explore was public opinion. We have to recognise that public opinion is not particularly disposed to the provision of significantly more bail-out money. Although there are some objections to pre-funding, and even about its practicality, the industry has to realise that the idea that it can regularly come back for public bail-outs at much cost will not be sympathetically considered.
	The Bill sets out protection for depositors, which is important. That security, with timely payouts, is right. It was a great shame that the vast majority of the depositors in the Northern Rock queues were already protected under the deposit fund so they did not actually need to worry. They did not know that, because the fund was not particularly well known or advertised, so we need to do some real education following the Bill to make depositors aware of their protections and of what they can expect to happen. We need to give them confidence, so that if there are some ripples they will have a clearer understanding that they are protected, and that they do not have to whiz round suddenly and take out a few thousand pounds of their hard-earned savings.
	Banks are undoubtedly one of the most capital-hungry businesses—they are always seeking capital. I have concerns that the provisions may set up some hurdles to the capital-raising exercises that will be important. Even if there are no hurdles, the process will be much more expensive than in the past, which will have an effect on the cost of money generally. We need to recognise that there will be genuine costs if banks are unable to amass or attract the capital they will need both for their own stability and also to operate effectively for themselves and for the economy.
	Mention has been made of the significant powers that have been given to the FSA and the Treasury, and there are inevitably concerns about them. The Minister has given us some reassurance, at least in respect of the Treasury powers, which is helpful, although there will always be concern about whether the FSA will use its triggers appropriately. We shall have to see. Overall, the situation is satisfactory. The thresholds for the safeguards may be a little low, but all such assessments are subjective, so it is difficult to prove one thing or the other.
	Our debates on Report were truncated because of the need to prorogue. If we had had the full time, we might have reached the amendment that my hon. Friends and I tabled to deal with the necessity for a sunset clause. Just as the Banking (Special Provisions) Act was sunsetted, we shall need to revisit some of the Banking Bill's provisions in more peaceful times, given that we have been considering it during a crisis-type situation. I hope that at some stage the Government will give our proposal some thought.
	I thank the Minister and other members of the Committee. The Minister was courteous and good humoured in sometimes difficult circumstances. Overall, we support the Bill. We hope that it will be further scrutinised in the other place and that it reaches the statute book before the previous measure expires.

Julie Kirkbride: I, too, will keep my remarks brief. As the Economic Secretary knows, Opposition Members wholeheartedly support the Bill's aims and have been calling on the Government to produce such a Bill for some time, and we therefore wish it a very fair and speedy passage. Of course, we want it on the statute book by February, but in the light of the Governor of the Bank of England's remarks earlier this week, when he set out a rather worrying picture for the future of our banking industry, the best option would be for that to happen as soon as possible. It was somewhat surprising for someone in his position to make things quite so worryingly clear.
	I want to make a few remarks about the Bill. As my hon. Friend the Member for Fareham (Mr. Hoban) said, we should remember how all this started, with Northern Rock some 18 months ago, when our banking system began teetering on the edge, as it has continued to do ever since. One of the reasons why the Northern Rock fiasco—crisis—came about was that, under the old rules of banking legislation, when the Bank of England offered emergency liquidity, it had to make that known. That was, in itself, a recipe for the disaster that followed.
	In future, under the Bill's miscellaneous provisions, which seems a minor section in which to put an important provision, such emergency liquidity offered by the Bank of England can remain secret. Clearly, although transparency is something to be desired in a situation that can cause a run on a bank, as happened with Northern Rock, the new rules are much better, and I am glad that the Government have learned the error of their ways, inasmuch as a rescue will be attempted before the public take fright and start to queue around the block at various branches of whichever bank might be in trouble. I welcome that important provision.
	I agree with my hon. Friend the Member for Sevenoaks (Mr. Fallon) that, although it is nice to see the Bank of England taking more of the centre stage in the regulation of our banking industry, there is more to be done in that respect. There are still problems with regard to the powers of the FSA and the Bank of England. Clarity of decision making is very important in what we now know to be such a crucial part of our economy. We are not letting banks fail—they are just too important—and someone therefore needs to be exclusively in charge. I hope that that role will be considered in future banking legislation.
	Finally, my hon. Friend the Member for Fareham, who speaks from the Front Bench, has played a much bigger role in considering the Bill than I have, and I am very glad about that because he has clearly gone into the detail. I was encouraged when he said that there is now broad agreement that the Government have got largely right their provisions for the SRR and that there is much more happiness in the banking industry and among Conservative Members about how that would take place. If I have one concern about this crisis, it is that when it is over—it will be over, eventually—the City of London remains an important institution for UK plc. Although we are very angry with the banking industry for the trouble that it has led us into, we must be careful in any future legislation to ensure that it remains an important part of our economy in future. We must ensure that the City is open for business and is the most attractive place to do so. It is very tempting to penalise the banking industry for how it has behaved and for what it has done, but, although we obviously have to put right what has gone wrong in our banking industry and give people confidence in it in the future, we must keep sight of the broader picture for the UK. We have a lot of jobs in the financial sector, and we want to continue to attract banks to London with fair and rational provisions that govern how any such similar situation will be dealt with.

Mark Field: These are, as the Economic Secretary pointed out, momentous times for this country's banking and financial services industry, which has, as my hon. Friend the Member for Bromsgrove (Miss Kirkbride) has just said, become an increasingly important element of the UK economy over the past two decades. It had importance before, but its status, and, indeed, the knock-on effect of any problems for other important commercial cities and towns in this country, let alone the City of London, should not be underestimated.
	I believe that in an ideal world—perhaps it is fair to say that we are not living in an entirely ideal world—it is important that any legislation is not over-rushed. I appreciate that there have been tumultuous events in the financial markets, and I suspect that that will be so for some months to come. However, in so far as anything is foreseeable—I accept that some eventualities are not—we should avoid putting our banking industry into too much of a straitjacket.
	I am also the first to accept, however, that the days in which both I and, indeed, my hon. Friend the Member for Fareham (Mr. Hoban) perhaps talked easily about the idea of light-touch regulation are done—at least, for now. I confess that even relatively sophisticated high-net-worth individuals—we have seen what has happened to such investors in one of the world's largest hedge funds in recent days—have to concede that those days will, I fear, come to an end.
	As my hon. Friend the Member for Bromsgrove pointed out, the future for London's financial centre will not be enhanced by low-regulation arbitrage, vis-à-vis other financial centres going forward. Clearly, that will not be the spirit of the age for some time to come. I must confess that I am also concerned about the City of London's future role as a world financial capital. We must be entirely candid about the fact that some permanent damage has been done by recent events—indeed, the same applies to Wall street—and the whole Anglo-American model of financial services will need to be shaken up.
	Clearly, the Bill plays an important part in that process, but we must regard this as work in progress in the weeks, months and, indeed, years ahead. That can only be further undermined by some of the unfolding scandals, and I am sure, I fear, that we have not heard the last of them. Nevertheless, I hope that the Government will take some heed of the quiet concerns of many people in the banking world. A lot of representations have been made to the Government during the consideration of the Bill, but although they broadly express support for the workings of the Bill, there are some concerns about how the compensation system will work.
	I should like to reiterate the concerns of my hon. Friend the Member for Sevenoaks (Mr. Fallon), who hit the nail on the head. We must look at the whole issue of competition law. Above all, as we have seen with the banking mergers that have taken place and the lack of independence for some banks, there is concern that competition considerations have been flung aside. We are living in tumultuous and difficult times that are bewildering for the public and for policy makers as well; but equally, we must remember that competition law is enacted not as an added layer of regulation but to protect the consumer.
	The bigger concern of many people is that smaller banking organisations and small organisations in the financial services world run the risk not only of perhaps over-contributing to a compensation fund, but of exiting from a lot of markets in the financial services world, simply because of those competition concerns. All too often, enhanced and enlarged regulation is a big barrier to entry for new competitors in what should be a vibrant field, full of innovation and flair.
	My hon. Friend the Member for Fareham rightly pointed out that some specifics will be considered in another place in January in relation to netting and set-off in the context of clause 48, but I should like to say finally that, although this is billed as temporary legislation, there is no doubt that, as my hon. Friend the Member for Sevenoaks said in his contribution, many of these measures will stay in place for quite some time. That means two things: first, we clearly need to give very great consideration to what we put on to the statute book at this stage—that has happened here and will happen in another place in the next few weeks of the parliamentary Session—but, more importantly, we recognise that this must be work in progress. I hope that the Government will pay great attention to what is being said in the banking and related industries to ensure that, where unforeseen problems arise in relation to the legislation, they are fully and properly dealt with.

Andrew Pelling: I think that I will take this opportunity to desist, Madam Deputy Speaker, because colleagues look keen to move on to the next business of the House.
	In conclusion, good work has been done in the Bill to provide the basis of speedy intervention in any future banking crisis. However, I hope that the Government will consider the introduction of the means to set up a bad bank—a solution that could deal with the crises that are upcoming in the next two months.
	 Question put and agreed to.
	 Bill accordingly read the Third time and passed.

Vincent Cable: I beg to move,
	That an humble Address be presented to Her Majesty, praying that the Value Added Tax (Change of Rate) Order 2008 (S.I., 2008, No. 3020), dated 24 November 2008, a copy of which was laid before this House on 24 November, in the previous Session of Parliament, be annulled.
	Let me move on from the end of term spirit to a very serious issue, which is the motion to annul statutory instrument No. 3020 relating to value added tax. There are two reasons to be concerned about the VAT change, and we want to register that fact from the Opposition Benches. Some people do not believe that there should be a fiscal stimulus or think that it would be damaging; I would expect the Conservatives to make that case in due course. My approach and that of my colleagues is somewhat different: we have no objection to the principle of a fiscal stimulus, but we think that this is a bad one that is not likely to be effective even on its own terms.
	Perhaps I should start with the Chancellor's own language in the pre-Budget report, when he declared:
	"I have decided that the best and the fairest approach is a measure which will help everyone"—[ Official Report, 24 November 2008; Vol. 495, c. 483.]
	and said that he proposed to give back some £12.5 billion to consumers. Our view is that that is not the best and fairest approach, that it will not help everyone, and that it certainly will not give £12.5 billion back to consumers. That is not to say that it is completely hopeless. There is a case for providing a fiscal stimulus through this measure that does not rely on "best" or "fairest" or consumer stimulus. It is a somewhat mechanical approach. What will happen—we can already see it happening—is that this measure will be absorbed in increased retail margins for everything from small shops to Sainsbury's, Asda and Tesco. Of course, that is putting money into the economy; no doubt if Tesco earns a little bit more profit as a result, that will be reflected in its share price and feed through into pension funds. If the Government had been honest with us and said, "Actually, this has got nothing to do with helping the consumer—it's all about putting £12.5 billion into the economy in the quickest way we can think of, and it's marginally better than dropping money from helicopters", we would find it difficult to quarrel with the logic. However, they have not done that—they have grossly overstated their case, and so we need to have a look at it and at its weaknesses.
	The policy makes extraordinarily optimistic assumptions about the course of the economy. It assumes, as was said in the pre-Budget report, that we expect a recovery in 13 months from now. Because of that very optimistic view of the course of the British economy, this measure could have some perverse and negative consequences that were clearly not thought through in the Treasury. As we approach the end of next year, most people will have to look forward to an increase in VAT that may be greater than a return to 17.5 per cent.—to reopen the whole issue of what the Government really intended—as well as an increase in income tax, although it is called national insurance. Most rational consumers will calculate that they face a reduction in real income and adjust their budgets and spending patterns accordingly.
	There is another, more subtle effect at work. Most economic forecasters now expect that next year we will see something that we have not seen for decades, possibly generations—namely deflation, whereby prices fall as they did in the 1930s and at various times in the 19th century. That is now factored into the assumptions of some of the money markets, so the Americans talk about it quite openly.
	In a deflationary world, prices fall. When consumers see prices falling, they hold back from spending, so the VAT cut has the perverse effect of encouraging deflationary expectations. That encourages people to spend less, rather than more. Those are two possible perverse consequences of the measure. I am not predicting that that would happen, but before we glibly assume that the VAT cut is simply an injection of consumer spending, I am pointing out factors that could work in the opposite direction.
	Secondly, on the impact of consumer behaviour, we need to take into account the fact that we are talking about a very small change. Mr. Steinbrück, the German Finance Minister who has often been quoted in the Chamber in the past few weeks, chose a singularly unhelpful example: he asked, rhetorically, whether people would respond to a change in the price of a DVD from £39.90 to £39.10. That is quite a good example, and I can give others: one that I have quoted in the past is the £5 off the £220 flat-screen TV from China. There is also the example of 60p off a £25 meal. One can question how much that is likely to influence the behaviour of a rational consumer.

Vincent Cable: My colleague eloquently made a point about the administrative costs of the change, particularly for small business—a point that I wanted to make in slightly more detail. As he rightly points out, in this country 2 million companies are registered for VAT, and many of them will have the kind of practical problems that he describes, which clearly were not anticipated in the Treasury.
	The Government acknowledge that the compliance costs of the measure will be £300 million. Of that, £90 million is simply the cost of conversion; it is £50 million to cut the VAT and another £45 million to convert it back again. We are talking about an enormous administrative cost, particularly to small business, in terms of managerial time and practical problems of conversion. That will substantially reduce much of the benefits. My hon. Friend mentioned some of the problems, and I shall cite a couple more from my constituency. A local garage, Broad Lane Garage, wrote to me, without any prompting from me, to say:
	"This imposed change has caused us, as a small business, great inconvenience and some expense...we have had bookings cancelled...The change to our systems has taken several telephone conversations and will ultimately require someone to come into the office out of their normal working hours to make the necessary alterations to our computer system".
	The company asked me to use all my efforts to communicate those views to the Government. If necessary, it will organise a petition for me, without my having asked for it.
	A computer software company described some of the specific, practical problems that a company is likely to have as it works through the transition. A business man in Twickenham said:
	"This VAT change is a potential disaster for businesses like mine. We run an IT company and we have just 4 days to get all our customer systems changed over. All our cash flow comes in from standing order mandates...Re-signing customer payment authorities is always difficult and the government have now given all business people particularly SMEs a real problem...If my customers take the opportunity to stop their payment mandates while they wait for us to issue new invoices with the VAT adjustment...it will be catastrophic for us and a good profitable technology business will be sacrificed for no good reason at all."
	I suspect that there are many arguments of that kind being aired in companies around the country.
	The final criticism that I want to make is about the Government's claim that the VAT cut is the fairest approach. There are very simple ways of testing the proposition that a tax change is fair. The Institute for Fiscal Studies will run through different tax changes to demonstrate their impact on different income groups. It has done that and points out that the impact of the VAT change on the richest 10 per cent. of the population will be to make them 1.6 per cent. better off, and the impact on the poorest 10 per cent. will be to make them only 0.6 per cent. better off. Obviously, most of the commodities most used by people in low-income groups, notably food, children's clothes and energy, at least at a lower rate, are exempt.
	My final point—this partly refers to the intervention from the hon. Member for Warwick and Leamington (Mr. Plaskitt)—concerns the alternative that we would advance. As I said at the outset, we do not believe that the Government should do nothing; there is a case for a fiscal stimulus. There are two elements to our answer. First, there are tax changes that are desirable. We have argued for a progressive change in the income tax system, cutting taxes for people at the bottom end of the income scale and raising them at the top by changing the system of allowances. That would have a differential effect on spending. It would be tax-neutral; it would not affect the deficit or public debt. However, it would provide a stimulus to the economy.
	The Institute of Directors has surfaced as an improbable ally, saying that
	"an income tax cut would have put significant cash directly into pay packets, ensuring that people noticed and providing a more effective stimulus."
	The argument that one should use the income tax mechanism rather than VAT has broad support in that sense.

Tim Boswell: Thank you, Madam Deputy Speaker, I shall do my best.
	I greatly welcome the contributions that have been made so far, which include contributions from those on the Conservative and the Liberal Democrat Front Benches, with their slightly different perspectives on the solution. Without wishing to put him in an invidious position, I also include the contribution made by the right hon. Member for Birkenhead (Mr. Field), who offers both his frank and trenchant analysis and his readiness to consider alternative solutions, which will impress us all. It happens, coincidentally, that on this occasion I agree with almost every word that he said about what should be done.
	I hope that I can indulge the House for a moment and take hon. Members back down memory lane. In the early 1970s, in the days when VAT was being conceived, I happened to be the head of the economics section at the Conservative research department and was, as it were, party to some of those initial discussions. Without going into the details of those discussions, I can tell hon. Members that two things were clear in principle: first, that any tax should have a broad coverage at a relatively modest rate; and secondly, that the rate should enjoy a degree of stability, which meant that we could not keep chopping and changing it.
	That was essentially a wise judgment and, in fairness to Governments since, that practice has continued. Since that period, there have been virtually a handful of changes in the VAT rate, until now, when we are, in effect, committing ourselves to two changes in one year. The measure should be called the Value Added Tax (Changes of Rate) Order—one change down and one change either back to the existing level or, as is more likely, in view of what we have been told by accident, upwards from that level.
	Let me make another point in parentheses. The history of the '70s, which was not very happy for Labour Governments, as has already been adverted to, shows a regular recourse to the fiscal regulator. Taxes were increased or decreased by 10 per cent. at a time by order. Those changes were designed to stimulate or curtail growth in the economy, but their effects were always well below the expected level of efficiency. That, I fear, will be the fate of today's measure.
	My other point goes to the politics of the thing. My political mentor, the late Iain Macleod, who sadly died before the introduction of VAT, always used to say, in his generous way, that he was not inclined to shoot even a one-legged Santa Claus, which is both a seasonal and, I hope, a material political reference. Of course it is difficult to cast oneself as the person who wants to say no to a proposal to cut taxes. The question is whether that proposal will help the economy. Is it the most effective way of stimulating the economy to deal with the consequences that the right hon. Member for Birkenhead was so right to mention or not? That is the real test of the measure.
	I want to say a couple of things about the detail of the order, because I was so impressed by representations that I received this week from a constituent—I have his permission to quote from his letter to me. His representations encapsulate in detail exactly the kinds of problems that will arise. Andrew Overton runs a company in my constituency called Overview Mapping Ltd, which provides vehicle tracking solutions for big fleets of vehicles and employs some 15 employees. In fairness, I do not wish to give all the details of the company's commercial situation, but it is fairly easy to derive from that a turnover, the amount of tax revenue that Mr. Overton is already paying and the scale of his business.
	Mr. Overton quotes me a figure for the decline in new sales for his business from pre-existing levels—that is, pre-credit crunch levels. In general terms, new sales have fallen by an order of magnitude, going from a rapid expansion to a virtual standstill. That will give the House some indication of where Mr. Overton stands. My concern, which he illustrated to me in figures, is about the likely cost of the change. His business model relies on monthly direct debit payments, on about 3,000 monthly collections. They are collected by a firm called Eazipay Ltd and processed for him. In affect, Mr. Overton acts as a conduit for VAT.
	Let us look at Mr. Overton's costs. The cost of one man-week of time to effect the changes is £500. The cost of amending 3,000 direct debits, at a standard charge from Eazipay of £1.50 a throw, is £4,500. The cost of accounts software changes, at one man-week, is £500 and the cost of sending letters to all customers is £500. The total cost is £6,000. That is backwards for the business, not forwards. We need to reflect on that.

John Randall: I begin by declaring an interest as a director of my family retail business, which has been in existence since my great-grandfather started it in 1888. The present times are more difficult than ever before, and I have to take the day-to-day decisions in the business, because, when life gets a bit difficult, those decisions end up being taken at the top.
	My heart sank when I saw the leaks during the weekend before the pre-Budget report was announced. I could not understand why on earth the Government were going to reduce VAT by 2.5 per cent. I actually thought that there must be more to it; I could not believe that they would be so crass as to reduce VAT by that amount. If they wanted to make an impact and give an impetus to consumer sales, they would have had to reduce it by considerably more, which would have involved huge expense and been completely unaffordable.
	I will tell the Minister what the effect of this measure has been on countless retailers—every retailer—throughout the country. When it was announced on the Monday, I immediately phoned the shop in Uxbridge and told my staff that we would implement the VAT reduction from the next day. That was effectively a week early, because no one would come into the shop otherwise—no one would buy anything that they believed was going to be cheaper the following week. We also had lots of orders that had been placed, and we had to make the decision to take a hit on those as well. Of course, the reduction is not 2.5 per cent. In real terms, it is 2.13 per cent. Consumers trying to do the mental arithmetic have soon realised that this makes hardly any difference to the price of most items.
	So, retailers have immediately had to take a hit. We have already heard about how they have had to put in the required software and change labelling. We decided not to do that, however, and we are still taking the appropriate amount off at the till. That is cheaper and more efficient, and I must admit that I am also making the political point to our customers, because they can then see how little they are actually getting. I have tried to be as neutral about this as possible, however. I might care about this place, but I care very much about the 30 people whom I employ—probably more than about anything else with regard to that business. I have asked them whether anyone has come in and bought anything because it has been reduced by 2.13 per cent., and, of course, that is obviously not the case. Perhaps the Minister will tell me what personal purchases he has made, that he would not otherwise have made, because of the VAT reduction. If he is an honest man—I know that he is—he will say that it has not made a blind bit of difference to him.
	So, this measure has been a disaster from the retailer's point of view. Consumers are already getting huge discounts, which are biting into margins. That is very likely to cause the demise of many retailers. A very sensible accountant of mine has told me, many a time, that turnover is vanity, and profit is sanity. It is all very well trying to reduce prices to get people to come in, but we have not had many people coming in.
	In relation to the compliance costs, why does the Minister think that it will be £5 million cheaper to re-price next year than this year? Is it because there are going to be fewer shops about? And why is familiarisation going to be so much cheaper? The hon. Member for Twickenham (Dr. Cable) made a point about the timing of all this. What is the worst time of year to put prices up? My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said that the provision would last until 1 December next year, and that there might be some change then. But who on earth is going to put their prices up at the busiest time of the year, or afterwards when the sales are on? Retailers are going to take a hit again at that time.
	What is the point of all this? I agree with my party and those on my Front Bench that this is not the time to be borrowing like mad, although I understand that others take a different view. I cannot go and borrow lots of money to help my business, first because I think it would be wrong and, secondly, because the banks would not let me. So why are the Government doing this? If I am being kind, I will say that it was something that they could do quickly, but actually I think that it was a gimmick and it sounded good. When he was Chancellor, the Prime Minister loved to finish his speeches with a gimmick, and he has obviously passed that on. Had the measure not been leaked, I think that the Opposition might have thought that it was a wonderful idea, for about five seconds until we worked out what it was really all about. It is a gimmick.
	I would not mind at all if the Minister were to say that he had changed his mind, and that he was going to put the VAT rate back to 17.5 per cent. and leave it there. I would even make a pledge to the consumers of Uxbridge that I would keep my prices at the 15 per cent. level because the current VAT change will not help them at all. I urge the Minister to look at this. When those at the Treasury make changes, do they ever ask real retailers and real people what they want, or do they sit down and come up with these incredibly ridiculous schemes? I was delighted to see that the Treasury did not bother working out the impacts on all the groups listed—and I am not going to go through them, as I would be attacked for being politically incorrect.
	To be honest, the whole VAT change is a gimmick that will not help, but will actually have a worse effect on retailers and poor employers. As the right hon. Member for Birkenhead (Mr. Field) said, after Christmas lots of people will be in big trouble. People will ask, "What did the Government do?" and the answer will be that they took prices down by 2.13 per cent. when they were already reduced. I have to say that that is a disaster.

Adam Afriyie: There are three words for this VAT reduction: foolish, foolish, foolish. It is foolish in its conception, it is foolish in the way it has been implemented in the House as well as across the economy, and it is foolish because it will not achieve the outcome for which the Government hope. I do not question the Government's motive; I simply question the method by which they are attempting to deliver their aim.
	The right hon. Member for Birkenhead (Mr. Field) used the word "effective", suggesting that there were probably more effective ways in which £12.5 billion, an enormous sum, could be put into the economy, or put into monetary stimulus, that would actually make a difference. I share that view, but I would put it slightly more strongly. I would say that reducing VAT is categorically the wrong thing to do at this time.
	Let me deal with the first count of foolishness in conception. I think that the reduction was conceived prematurely. The problem that we have is the lack of liquidity. Can people borrow money? Can people renew their mortgages? The answer is no, not at the base rate that has been set. Can businesses continue with their existing overdrafts and loans? The answer is no, certainly not at the current interest rate, and many facilities have been withdrawn. Can people purchase cars? We have seen a 37 per cent. decline in the number of cars purchased in the last quarters. People cannot purchase cars because there is not enough liquidity. There is not enough cash in the system, so the finance houses will not finance new vehicles. That is the problem, and sadly the solution provided by the Government is an incorrect one. They are providing a fiscal stimulus when what is required is more cash flowing through the banking system. It is the Government's banking solution that has not worked.
	I believe that the VAT reduction was also born out of panic. It is clear that a massive economic failure is taking place. We can argue about whether it is a world downturn, and of course we acknowledge that it has international aspects; but we are clearly in a worse position than most developed countries to respond to the situation. I believe that the Government were under pressure to do something, and simply grasped at a measure that they hoped to be able to implement quickly. They grasped at the wrong measure, and I suspect that they are beginning to realise that that was a mistake.

Adam Afriyie: That is a well made point. I was merely observing that there is an exception for VAT, which is why we have the VAT cut on the table today rather than a more measured approach involving our examining more sensible measures in the Budget in the round, as we normally would.
	The other reason why this was a foolish implementation that was too aggressive and hasty is simply the amount of notice given to businesses. I declare an interest in that I am a non-executive director of two or three businesses, and it is clear that the stress and cost involved in adjusting accounting procedures and adapting to the way businesses will behave in the short term are onerous. The estimated sum—I cannot remember whose estimate it is—for complying with this VAT change was about £300 million, with possibly a further £300 million next year. That is about 7 or 8 per cent. of the hoped-for benefit from this measure.
	Finally, this is a foolish measure because it will not achieve the outcome the Government seek. I ascribe good motives to them: the Government want to boost expenditure in the economy so that growth begins again, but this will not do that.

Adam Afriyie: That is another well made point. I was glad to give way, because I know that my hon. Friend will not have time to make a speech.
	This move is foolish because it will not achieve the desired outcome; it does not help the least well-off as much as it helps the wealthy; the duties on spirits and on fuel charges are not reclaimable, so the effect is a net one—if not an increase in tax—for the groups of people involved; and prices are already falling so a 2.1 per cent. reduction will make no difference. I simply say that there are better things to do with £12.5 billion. We need to get the money pumping round the system. Our idea, which I hope the Government will adopt, of a loan guarantee scheme—a credit guarantee scheme—will make a huge difference in pumping that money round the system so that people begin to get mortgages, begin to feel confident and begin to spend money again.

Vincent Cable: I thank the Minister for giving me 100 seconds to respond to a long and complex debate. I shall not say a great deal about his contribution. He got off to a good start by reminding us about the 1997 fiscal framework and suggested to me that chutzpah is a necessary qualification for being a Treasury Minister, which he has now done twice.
	There were two major contributions to the debate, and I just want to respond to the right hon. Member for Birkenhead (Mr. Field) and the Conservative spokesman, who brought up two major issues. First, of course this is all overshadowed by the banking system and the lack of credit, and that is what we have to focus on. I have spoken about that volubly and at length, so I totally agree with that. The subject of what exactly we should do is more controversial. The Conservative proposal for guaranteed credit may have an important role, but, as I pointed out on Monday, if it is work it effectively means the nationalisation of credit. That, of course, would have major public finance implications that I do not think they have yet thought through.
	The other major issue is whether we believe that any fiscal stimulus is necessary. I am perfectly willing to entertain the dangerous idea that the hon. Member for Runnymede and Weybridge (Mr. Hammond) and the right hon. Member for Birkenhead may be right and that such a stimulus may not work. If that is so, however, they should be in Washington, not lecturing us here.
	What is being proposed is just the faintest echo of what is happening throughout the western world, and especially in the US. The American Congress and the new US Administration are preparing a stimulus that is about 30 times as big as the British stimulus, in a context of even weaker public finances than ours. If it does not work, the consequences for the western economies will be catastrophic. As I said—
	 One and a half hours having elapsed since the commencement of proceedings on the motion, the Deputy Speaker put the Question (Standing Order No. 16(1)).

Anthony Steen: On a point of order, Mr. Deputy Speaker. We need your advice and guidance. Today I received an e-mail from a mole—or perhaps I should say a krot, which is Russian for mole—from the UK Border Agency saying that the Government were going to ratify the Council of Europe convention on action against trafficking in human beings. As chairman of the all-party group on the trafficking of women and children, I have not been notified of that. Opposition Members do not know anything about it, and there has been no announcement from the Government.
	Is there any point in having a Chamber of the House of Commons if the Home Office forget or ignore the fact that there is a House of Commons and there are Members of Parliament, and that we need to know whether ratification is going ahead before the media, other organisations and every Tom, Dick and Harry? It is a terrible abuse of the House that the Home Secretary chooses to announce that this is going ahead—if that is the case—and one hears it from a mole in the UK Border Agency. I should advise you, Mr. Deputy Speaker, that I have left my door unlocked, if the police want to see anything further.

Simon Hughes: Both of the proposals seem eminently sensible. I am grateful to the chairman and his colleagues, the trustees, for considering these important matters. These things need careful deliberation, as they would for anyone else planning for their retirement. My intervention was not to suggest that if extra money were asked for from the Treasury there was not a Government interest. My understanding of the package is that it would reduce the Treasury's liability, but perhaps the Deputy Leader of the House could confirm that in a second.
	I have two brief points, one of which relates to the first motion, which seems eminently sensible because it gives greater flexibility. That is something we would wish for others outside this place, so we are not asking for anything special. That flexibility means we can take less, or more, from our salary. We will have three choices as to how much is deducted and three choices on the length of time over which we can contribute. The proposal and that flexibility are both eminently sensible. I support what the hon. Member for Bournemouth, West (Sir John Butterfill) said because people should be able to vary the arrangement at the beginning of each Parliament. That seems an appropriate response for the reasons that he gave: people's circumstances change and they might want to contribute more quickly to reach the maximum of the pension.
	I apologise if the hon. Gentleman said this, but I want to repeat it because I think it is important. I understand that we are one of the only groups of people who are limited to a pension with a two-thirds maximum in relation to our finishing salary. That does not apply across the work force in general, but because we are governed by a special arrangement in statute, we are kept to it. The public need to know that.

Chris Bryant: My right hon. Friend makes a good point. It is also true that many former Members of Parliament have to rely on the charitable funds that the House provides because, in the past, provision has simply not been adequate. Those who commit themselves to public service through the House are owed a debt of gratitude. We do not want to overstate that, but it is important that we should look at that issue.
	On the matter of retirement through ill health, it is important that we should introduce the two tiers that the trustees are calling for. That will mean that those who are permanently incapable of any work—including work in the House of Lords—would get the full pension to which they would be entitled if they were not retiring through ill health and had been able to work until the age of 65. Others, who have only a partial incapacity and who are not permanently incapable of any further work—and who might end up in the House of Lords—would receive a pension only in relation to what they had so far earned by virtue of their contributions and the Treasury contributions, but that would not be actuarially reduced by virtue of the fact that they were retiring early.
	It is also important that there should be regular reviews. My hon. Friend the Member for Walsall, North asked the hon. Member for Bournemouth, West how many people had retired through ill health. I can tell him that the precise figure for the past 11 years is 26, so we are not talking about an enormous number of people. However, there can be a great deal of distress involved not only for the individuals concerned, but for their families. Being a Member of Parliament is an arduous job, not least because of the travel between our constituencies and the House, and if we are to do the job well, we need to throw all our energy into it, as I know all hon. Members seek to do.
	Finally, the hon. Member for North Southwark and Bermondsey (Simon Hughes) said that this was not a Government concern. I think that there are only two regards in which it is a Government concern. The first is that, as my hon. Friend the Member for Walsall, North said, the eyes of the nation are on how we make provision for our own pensions, so it behoves us at this particular time to be careful not to incur additional costs to the taxpayer. The taxpayer already makes significant contributions to the parliamentary pensions fund. Secondly, we are presented with a cost-neutral package—as I have already said, a saving of 0.4 per cent. in one direction and an additional cost, we believe, of 0.4 per cent. in the other direction.

Simon Hughes: Prompted by what the right hon. Member for Islwyn (Mr. Touhig) said, I think I am right in saying—the Deputy Leader of the House may confirm it—that the average length of service for MPs is for fewer than 10 years, so we are not talking about large numbers of people with huge pensions accrued over many years. It is too easily assumed by people outside that we are here for ever, whereas many MPs are actually here for a short time rather than a long one.

Andrew MacKinlay: The jobs should probably be in the same band, but there is a danger of our comparing an apple with an orange. The hon. Member for Gosport prayed in aid this candidate's work on regulatory bodies. Special qualities are probably required for jobs on some of the regulatory bodies and even for the job of Information Commissioner; indeed, people would look for candidates in a different reservoir. I do not think we are comparing like with like.
	I recognise how imperative this role is, but my knowledge of public life means I am aware that many people could undertake this job with enthusiasm and to the satisfaction of the body politic of the United Kingdom, and could do so on a much lower salary. The hon. Member for Gosport did not say that this is so, but I imagine these wretched consultants—I used that adjective deliberately, out of despair—would do the initial selection. How kind of them! Even if there had been an open advertisement, the considerations I mention would not have reached the people making the recommended appointment.

Andrew MacKinlay: The hon. Gentleman will have heard the echo from behind me. Many of us think there should be some scrutiny of appointments, the ground rules, the terms and conditions of services and the pay and rations by the appropriate Select Committee before we embark on the advertisement and the selection of a shortlist. If we reject this proposal, perhaps it will signal a change to the sloppy appointments to which, by our silence, we have acquiesced for too long.

Andrew MacKinlay: My hon. Friend rightly raises the critical stage we have reached both for the legislation before this House and for the work of the Electoral Commission. Of course, it is a sensitive time. I would not choose to make the changes at this stage. It is not for the House of Commons to micro-manage the situation, but my point is still valid. For instance, was it impossible to ask the existing chairman to stay on for a period? In a sense, my hon. Friend's point supports the notion that that chairman should see things through and should provide continuity. Presumably, there is a vice-chairman, who is no doubt on a substantial salary. He or she could act up. The timing is not ideal, but if we let things go we will have abdicated our responsibility to our constituents, who, if they saw this debate or noticed any reports of it, would see it as a disproportionate expenditure and an offence at this time of constraints. That is my case.

Shailesh Vara: From a sedentary position, the hon. Gentleman says that anyone could do it, but I am minded to say that, if he felt he could do it, he should have put his name forward. I am also tempted to say that he probably would not have got the job.
	We should be mindful that the salary that Ms Watson has accepted is much less than the one initially advertised. The suitability of the candidate for the post of chairman is not in doubt and, if we are to have the right candidate, we must be prepared to pay the right amount. Given all the circumstances, I am happy to rely on the judgment of those trusted with making the final selection regarding the final amount of pay for this position.
	I shall conclude by thanking my hon. Friend the Member for Gosport and his colleagues for undertaking this task. They put in a lot of hard work, and they did their job with distinction. For that, I thank them.

Eleanor Laing: The hon. Gentleman may have noticed during the passage of the Political Parties and Elections Bill that the electoral commissioner, instead of resigning and running away from the issue, persisted with individual voter registration, as did the Opposition. I tabled an amendment to the Bill, which was of course the hon. Gentleman's Government voted down, but those of us who believe in individual voter registration still persist, with the backing of the Electoral Commission, quite properly and democratically.

Simon Hughes: It will certainly allow the fire to be brought under control much more quickly—I agree with that, Mr. Deputy Speaker. I did not know about the inquiry, so the hon. Gentleman's intervention is very helpful.
	I support the measure and I recommend that my colleagues support the two motions on the Order Paper. I hope that Jennifer Watson takes up her post in the new year, and does so robustly. However, I hope that before similar proposals are put before us on other appointments that are in our gift we have completed the exercise of comparability—across not only the public sector but the private sector. One of the scandals of Britain in 2008 is that the gap between the well-off and less well-off has widened, and far too many people are paid ridiculously high salaries when many of our constituents have very little indeed. Unless we redress that, every debate on such matters will be provocative and a lot of people will be regarded as far too well paid relative to most of the people whom they seek to serve.

Rob Marris: I agree with my hon. Friend, to the extent that I agree that there is a substantial number of people out there—thousands in my constituency—who would do the job for £100,000 for three days a week, but with all due respect to my constituents, there are not thousands of them who could do that difficult job. I am not sure that there are vast numbers of people who could do the job and who would wish to put their name forward—that is, who do not like their current job, are unemployed or have three days a week spare. However, as I was saying earlier, there are a limited number of such positions for people who have those skills.
	We have to bear in mind the notion of public service when we consider the remuneration of the individual. In the public sector, there should of course be remuneration, so that people in the public sector who have a sense of public service can contribute and still pay their mortgage, eat and so on, and so that we get people with certain qualities, but there should not be direct comparison with what an individual with a given set of skills could earn in the private sector.
	Looking around the House, there are quite a number of right hon. and hon. Members, including myself, who took pay cuts to come here because of a notion of public service. There is, I am convinced, an even larger number of right hon. and hon. Members who could earn more than they do as Members of Parliament on leaving this place. The reason why they do not leave, and the reason why they are prepared to take a pay cut when they come here, is the notion of public service. The job of chair of the Electoral Commission should involve the notion of public service.
	I pay tribute to Jenny Watson for what appears to be her notion of public service. She put her name forward, as I understand it, for a package of £150,000 for three days a week. It was then suggested to her, as the hon. Member for Gosport pointed out, that that may not get through the House of Commons, and she was asked to reconsider the job at £100,000 for three days a week. She said yes—or the motion would not be before us. That is someone who has knocked off a third of the pay for the role that they thought they were going to get, and she clearly seems to have a notion of public service—unless she could not get another job, although we know that she has one, which is another three days a week or so.
	However, I am so uneasy about the way that the situation has come about and the remuneration for a chair of £167,000 pro rata that I will be driven to vote against both motions, even though I have no dispute whatever with the candidate.

Bob Spink: I apologise, Mr. Deputy Speaker.
	I feel a little like Scrooge and a little embarrassed that we are even debating an individual and her salary. It seems somewhat below what we should be doing in the Chamber, but we have to do it. It is our duty, so we must approach that task diligently, no matter how embarrassing.
	I start by thanking the hon. Member for Gosport (Sir Peter Viggers) for all that he has done, his courtesy and his help in the matter. He has done a sterling job and his words earlier were very helpful, so I thank him most sincerely.
	Let me give the House a little of the history. There was a motion on the Order Paper some three weeks ago for a salary of £150,000. I looked at that and thought it was excessive. It was equivalent to a full-time salary of £250,000 a year for a chairmanship. I immediately banged down an amendment to reduce that salary to the level of salary of a Member of Parliament. I thought that that was a reasonable level of pay for a public servant. Excellent arguments have been made about public service, which is a large factor. With the pension and other benefits that go with it, a salary of £250,000 a year is a very big deal.
	Now, Mr. Chairman—sorry, Mr. Deputy Speaker; I think it is because we are debating the subject of the chairman of the commission that I keep making the mistake. When my amendment was tabled, the motion was withdrawn and immediately replaced with a motion for a salary not of £150,000, but of £100,000. That equates to £167,000 a year, with pension and other benefits, which is still quite a substantial salary for such a chairmanship position. It is about the same level of salary as the Prime Minister gets. I thought it appropriate to table an amendment reducing the £100,000 to the level of salary of a Member of Parliament. That amendment was not selected so we will not debate it tonight.
	That change from £150,000 to £100,00 a year in salary has saved the public purse £250,000 over the next four years, along with the pension and benefits. That is quite a substantial sum, so this is not an insubstantial debate. There was a nice round figure of £150,000, and now there is a nice round figure of £100,000, and I wondered where it came from. Let me tell hon. Members where it came from. It was plucked out of thin air. There is no analysis, no job evaluation, no Hay-MSL comparison of salaries. All those tools are available.
	There may have been recruitment consultants who were consulted and gave the answer that was sought, and I wonder how much they were paid. Were they paid a percentage of the salary? I suspect that they were, in which case they would want to see the salary higher— [Interruption.] Higher or lower? Higher. That is what recruitment consultants do. I know that extremely well, and the House knows that. Was there a formal analysis? Was Hay-MSL used? Was there any job evaluation? If there was, why has that evidence not been presented to the House? It seems to me that the £100,000 was plucked out of thin air.
	I come now to the real debate that I wanted and why I challenged the salary in the first place. When pay is being decided—that is what we are doing tonight—it is absolutely right that performance should be considered. What we are considering represents an increase of about 8 per cent. on the current incumbent's salary and we would all agree that performance in the job is an essential consideration.
	The Electoral Commission has been warmly praised; the hon. Member for North Southwark and Bermondsey (Simon Hughes) said that it was important, and I agree. It is crucial. The hon. Gentleman said that it was available, courteous and accommodating and that its representatives were nice people; we have all said such things. We know that Sam Younger is a great guy.

Ken Purchase: Well, isn't that a giveaway: "We can trust democracy. Not" he said. Oh no, we cannot trust democracy. Of course we can —[Interruption.] Look, if the great Winston Churchill decided that out of all the systems, democracy was the least worst, I am prepared to go along with it. What I am not prepared to do is continually undermine the power and strength of this House by giving it away to unelected people in quangoland who, if they had any respect for this place, really should not be doing these jobs at all. It seems to me that we have to be proper, right and judicial in this House in setting down the rules. If that fails, then we have the police. If it is felt that people have acted unlawfully, refer it to the police; do not go through this nonsense where these people spend 12 months testing out a decent Member of this House only to decide that there is no case to answer. We should do it in the right way to begin with. I shall support the amendment this evening and I sincerely hope that we reflect on all of this business of quangoland before we make any further appointments.

Chris Bryant: This is the vote before Christmas, so I shall not seek to delay the House too long. The Government support the motion, ably moved by the hon. Member for Gosport (Sir Peter Viggers), speaking on behalf of the Speaker's Committee. We are grateful to all those who have taken part in this decision.
	I would like to pay my personal tribute to Sam Younger. I used to work with him at the BBC; I have known him for several years and know him to be an honourable and upright man who has performed his tasks with a great deal of probity. There were many occasions on which I profoundly disagreed with what he and the commission had said and done, but I none the less think that there are times when having such an element of grit in the political democratic system is important, especially if we are to maintain brightly the pearl of democracy.
	From what I have read in the report presented in July, I believe that Jenny Watson is an able person who has the kind of track record that would recommend her for this post. She was chosen unanimously by a panel nominated by Mr. Speaker, chaired by Baroness Fritchie of Gloucester and including a representative of the Office of the Commissioner for Public Appointments. Although there has been some criticism of the process of appointment, I would not want to echo it, although I will come on to the issue of remuneration in a few moments.
	Jenny Watson is the former chair of the Equal Opportunities Commission and a non-executive board member of the Audit Commission. It is good that she has shown a degree of commitment to public service, which my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned earlier, and it will enable her to enhance the role of the Electoral Commission. As is required, the leaders of all the political parties in the House were consulted and none raised any objection to the appointment, so I think that it is a good one.
	Several hon. Members raised the issue of remuneration for the chair of the Electoral Commission. It would have been wrong for us to propose voting on £150,000 this evening and I pay tribute to Jenny Watson for taking the very significant pay cut that was proposed to her some time after she was offered the job.

Bob Spink: Surely the Minister is not telling the House that if I had not tabled an amendment to reduce the remuneration from £150,000 to £100,000, the House would not simply have allowed it go through on the nod? If he is telling that to the House, he is being disingenuous.

Peter Viggers: With the leave of the House, Mr. Deputy Speaker.
	In response to the last comment made by the Deputy Leader of the House, I should point out that it was the House that created the regulations that annoy us all so much, and that it would be for the House to change them if the Electoral Commission were put in a position in which it did not have to require duplicate registration.
	There have been some calls for a broader discussion about the Electoral Commission, and I for one would welcome that. The only full discussion we have had on the subject was one that that I instituted by asking for a debate on the Consolidated Fund. I have been asking Ministers for Government time for such a debate, because there are indeed many issues to be discussed.
	The main purpose behind the creation of the commission was to promote participation and confidence in the electoral process, and we know what has happened over the past 10 years. It may well be that acceptance of the commission's proposal for individual voter registration would help to put right some of the things that have gone wrong in the past 10 years, so we need a more general debate. I would welcome a more general debate on appointments and salaries for similar reasons. However, we are not here this evening to talk about that. We are talking about the appointment of a chair of the Electoral Commission, and the remuneration that that chair should receive. The Electoral Commission does exist, and until the House abolishes it, there it is. It needs a chair; it needs to be properly led. That is what we are discussing.
	As for the appointment process itself, I absolutely reject the criticism that the selection process was not properly conducted or considered. It was rigorous, it was scrupulous, and it was properly conducted in every detail. I am proud to be associated with it.
	The remuneration was also carefully considered. Our starting point was the 11th report of the Committee on Standards in Public Life. We did not start by asking, "How much should we give Jenny Watson?" We started by listening to the Committee, reading its 11 report, and noting its call for a refocusing on the part of the Electoral Commission and its demand for leadership and direction from the commission. On that basis we consulted, discussed and asked about the terms and conditions that we would need to offer in order to recruit the very best candidates. We managed to reduce 37 candidates to five and then to four, we interviewed them all, and I am confident that we chose the best. We went into the process with our eyes wide open, knowing exactly what we were seeking to do. It was on that basis that we decided that the right salary was £150,000 a year for a three-day week.
	We are, of course, talking about March 2008. The world has changed since March 2008, but when the proposal was made, it was to meet the wish of the Committee on Standards in Public Life. I draw the House's attention to the fact that the motion proposing a salary of £150,000 a year for a three-day week carried the words "Queen's recommendation signified", meaning that it was acceptable to the Treasury.

Peter Viggers: My reply is that the hon. Gentleman should ask the Government. It is the Leader of the House who tables motions. We considered it to be very important that we reach our conclusion on the appointment in June of this year and it has taken until now; the responsibility for that lies squarely with the Leader of the House.
	The hon. Member for Castle Point (Bob Spink) claimed credit for reducing the proposed salary from £150,000 to £100,000. Having been engaged in this process, I have to tell him that although we noted his contribution on the Order Paper, he cannot claim credit for that. It was a matter decided by discussion and consultation.
	I am not a natural friend of quangos—

Kate Hoey: Further to that point of order, Mr. Deputy Speaker. Many of us who would like to support the appointment of a chair of the Electoral Commission but do not want to support the salary would very much like to have a separate vote.

Ann Keen: I thank my hon. Friend again. He has introduced this issue tonight, Claire's family are involved and Claire had committed to continue to campaign—if we in the House and our debates mean anything, it is our duty to look at the evidence again. I thank all the charities and organisations that have been involved in bringing such detail to our attention and I recognise why the research was acted on as it was. It is always right to look again when issues are introduced as my hon. Friend has introduced this one. I give a commitment to keep a very close eye on the issue and keep my hon. Friend informed of progress.
	 Question put and agreed to.
	 House adjourned.